Will Gasoline Prices Stay High In The Aftermath Of Harvey?

HOUSTON, TX - SEPTEMBER 01: A person walks down a street as residents begin the process of cleaning up the damage to their property after torrential rains caused widespread flooding during Hurricane and Tropical Storm Harvey on September 1, 2017 in Houston, Texas. Harvey, which made landfall north of Corpus Christi on August 25, dumped around 50 inches of rain in and around areas of Houston and Southeast Texas. (Photo by Scott Olson/Getty Images)

It is amazing how much can change in a blink of an eye. Hurricane Harvey made landfall less than a week ago and flooded Houston and the surrounding areas. Thankfully, the residents of the impacted areas stood strong, united, and supported each other during this very difficult time.

Harvey's Impact On Energy Prices:

The impact on the energy market is a little different. Gasoline prices soared last week as several of the countries refineries were forced to shutdown. Meanwhile, Heating Oil and Natural Gas also rallied last week while crude oil fell.

The question investors are asking is: Will gasoline prices stay high? The answer depends on two factors:

How much actual damage occurred?

How long will it take to clean everything up and get the refineries working again?

What The Pros Are Saying:

Stephen Raneri, Chief Investment Officer, GM Advisory Group said, “Crude oil and refined products like gasoline are global commodities. As we speak, producers in Europe are shipping gasoline westward to capitalize on the supply shortage from Harvey. This will naturally push prices in the US back down as the US gulf coast refiners spend the next few days and weeks assessing the damage and getting back up and running.”

Jim Besaw, Chief Investment Officer, GenTrust said, "The spot price of gasoline soared over 20% this week although longer term measures of gasoline prices such as the November futures contracts were up only 5%, indicating the market is expecting the disturbance to dissipate within a few months. Increased prices are unlikely to adversely affect the real economy as historically it has taken sustained levels of elevated prices such as during the 1970s to significantly impact consumer behavior. Even after this week’s spike, prices are still more than $1/gallon less than they were from 2011 to 2013."

Jay Handy, Cofounder and Senior Portfolio Strategist at SignalPoint Asset Management said, "As devastating as Harvey has been to the good people of Texas and Houston, it is our feeling that the gasoline prices will return to normal long before the state recovers. Causes for an upward jolt in gas prices, such as the Arab Spring and BP spill, have been only temporary. All markets, including oil (and eventually gasoline), tend to find their equilibrium soon enough. Even if our prediction is not correct in this case, one has to keep in mind that in today’s dollars we were paying $4.50 a gallon 9 years ago. Clearly, we have some room before real sand gets caught in the gears of our economy."

Samantha Hughes, Senior Market Strategist at AnalyzeWallStreet, said, "Under normal circumstances, the answer would be higher for the foreseeable future. However, supply for energy has soared in recent years and the world is awash with oil. Any short term blips aside in gasoline, there still remains ample supply so prices will likely come down real soon."

Tony Rodzano, CIO and co-Founder, T5R Financial, said, "Gasoline prices are determined by supply and demand. There's no question, supply will be impacted due to Hurricane Harvey. I'm taking the other side of the trade and think gasoline prices will be much higher in a few months. What most people forget is that hurricane season isn't over until the end of October. Let's hope another one doesn't hit."

Brian Kazanchy, CFP®, CFA, MBA RegentAtlantic Managing Partner and Wealth Advisor, said, "Gasoline prices didn't spike on unexpected demand or on hoarding - they spiked because Hurricane Harvey knocked out a significant portion of our gasoline producing capacity. Refineries take time to repair and to bring back into safe operation, and the pipelines that run gasoline have suspended transportation for the sake of safety. In 2005 we had two hurricanes hit the Gulf Coast - Katrina and Rita, which took gasoline production out in a significant way. Price spikes in both cases were over $1 per gallon, and it took about a month in both cases for prices to normalize. Some things that help to prevent spikes that lost much longer than one month is the global oil supply system - there are weeks of gasoline in storage at any given time, and more importantly, European refineries can ramp up production and ship their excess supplies across the Atlantic. This take time, but a month is usually long enough for the supplies to balance themselves out."

Hoping For A Swift Recovery:

As you can see, some people are bullish and some are bearish. The bottom line a lot of what happens to energy prices will be directly dependent on how long it takes to clean up the mess. Let's hope for a quick and safe clean up.

CEO of 50 Park Investments & ChartYourTrade.com. We Provide The "R" In Your R.O.I. Let's Talk, If You Want Someone New To Manage Your Portfolio: 50Park.com or Email: Info[at]50Park.com